Income Tax on winning lottery, crossword puzzles, game shows, horse race

Income from winning awards and prizes such as lottery, puzzles, online gaming or TV game shows, card games etc are considered as income from other sources under the head IFOS of Income Tax. The winner may receive such income in cash or kind. The tax rate is flat 30% as per Section 115BB of the Income Tax Act.

• Winning from Lottery
• Crossword Puzzle
• Races including Horse Race
• Card Games
• Gambling
• Betting
• Game Shows
• Any other income of similar nature

Income Tax on Awards & Prizes

Such incomes may be earned in form of cash or kind in forms of awards or prizes. The tax treatment depends on multiple factors.

• Awards
  • If the Award of public interest is approved by the Government, it is exempt from tax. Awards such as National awards, Nobel prize, Arjuna award, Bharat Ratna award, etc notified by the government under Sec 10(17A) is exempt from tax in the hands of the receiver.
    Awards such as filmfare, ICC Cricket awards, etc are taxed as IFOS income since they are not approved by the Government
• Prizes
  • Prizes earned are taxable in the hands of the winner as Income from Other Sources income (IFOS) as per Sec 56(2) of the Income Tax Act. Income from betting, gambling, sports events, horse race etc are all taxable incomes

Tax Rate on winning lottery, puzzle, game show, horse race

Tax on lottery winning, crossword puzzles, card games, etc is at flat rate of 30%. After adding the health & education cess of 4%, the effective tax rate is 31.2%. The income would be taxed at flat 30% without considering tax slab rates. If the prize is received in kind, tax is calculated at the market value of the item received.

Example

Divya won a lottery and received INR 5 lakh in cash and a diamond ring worth INR 1 lakh. She also has Fixed Deposit Interest income of INR 1 lakh. She has invested INR 1.5 lakhs in Section 80C and also paid INR 25,000 as medi-claim. Calculate the tax liability.

TDS on prizes & winnings

TDS under Section 194B is applicable on income from lottery, betting, gambling etc. If the income exceeds INR 10,000 during the financial year, the prize distributor is liable to deduct TDS at 31.2% at the time of making the payment.

TDS under Section 194BB is applicable on income from activity of owning and maintaining horse races. If the income exceeds INR 10,000 during the financial year, the horse race organiser is liable to deduct TDS at 31.2% at the time of making the payment.

ITR Form & Due Date

• ITR Form: Winnings from lottery, puzzles, betting etc is treated as Income from Other Sources. The taxpayer should file ITR-1 (if income is upto INR 50 lacs) or ITR-2 (if income exceeds INR 50 lacs) on the Income Tax Website.
• Due Date – 31st July of the Assessment Year. For eg: Due Date to file ITR of FY 2020-21 (AY 2021-22) is 31st July 2021.

Special Provisions for tax on winning lottery, puzzle, game show, horse race

If a taxpayer has income from winning a lottery, puzzle, card game, gambling, etc, here are important provisions applicable:

• The taxpayer cannot claim deductions under chapter VI-A such as Sec 80C, 80D, 80G etc for such income
• The taxpayer cannot claim any expenses against such income
• Income Tax on such income is at a flat rate of 31.2% and thus the taxpayer cannot claim benefit of basic exemption limit and slab rates
• The taxpayer cannot claim any refund of the TDS deducted on such income
• Loss from owning and maintaining horse race cannot be set-off against any income except horse race income. Taxpayer can carry foward the remaining loss for 4 years

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